USD/JPY Retail Positioning Stretched Ahead of NFP Report

2016-02-04 17:55:00

Talking Points:

- USD/JPY Retail Positioning Gets Increasingly Stretched as Selloff Continues.

- AUD/USD Threatens Bearish RSI Formation Ahead of Australia Retail Sales, RBA Policy Report.

- USDOLLAR Continues to Search for Support Ahead of U.S. Non-Farm Payrolls (NFP).

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Chart - Created Using FXCM Marketscope 2.0

Despite negative interest rates in Japan, USD/JPY continues to grind lower, with the pair at risk for a further decline as the Relative Strength Index (RSI) fails to preserve the bullish formation from earlier this year; will watch for near-term support around 115.96 (2016 low) to 116.20 (50% expansion).
Even though the Bank of Japan (BoJ) keeps the door open to further embark on its easing cycle, risk sentiment may continue to drive dollar-yen volatility over the near-term as market participants gauge the diverging paths for monetary policy; will keep a close eye on the downside targets as the pair preserves the downward trending channel from July.
The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long USD/JPY since January 29, but the ratio has snapped back towards recent extremes as it climbs to +2.39, with 71% of traders now long.

AUD/USD

AUD/USD looks poised to extend the rebound from the previous month as the pair appears to be on its way to test the descending trendline from July, while the RSI threatens the bearish formation from back in October.
Even though Australia’s 4Q Retail Sales report is anticipated to show a 0.9% expansion following the 0.6% rise during the three-months through September, the Reserve Bank of Australia’s (RBA) Monetary Policy report may dampen the appeal of the higher-yielding currency should Governor Glenn Stevens and Co. highlighter a greater willingness to implement lower borrowing-costs over the coming months.
Will retain a constructive view on AUD/USD as the RSI appears to be carving a bullish setup, with the next topside objective coming in around 0.7260 (78.6% retracement) to 0.7270 (38.2% retracement).

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USDOLLAR(Ticker: USDollar):

Index	Last	High	Low	Daily Change (%)	Daily Range (% of ATR)
DJ-FXCM Dollar Index	12071.69	12121.49	12041.13	-0.29	158.44%

Chart - Created Using FXCM Marketscope 2.0

The near-term selloff in the USDOLLAR may gather pace over the coming days as mixed data prints coming out of the U.S. economy drags on interest rate expectations, while the RSI fails to retail the bullish pattern from back in August.
Even though U.S. Non-Farm Payrolls (NFP) report are projected to increase another 190K in January, a slowdown in Average Hourly Earnings may further dampen the appeal of the dollar as it undermines Fed expectations of achieving the 2% inflation goal over the policy horizon.
Will keep a close eye around 12,049 (78.6% retracement) to 12,082 (61.8% expansion) for near-term support, but a close below the key region may open up the next downside target around 11,951 (38.2% expansion) to 11,965 (23.6% retracement).